VAT Digital Single Market Package announced

13 December 2016

On December 1, 2016 the European Commission announced new VAT rules for e-commerce, which are intended to simplify VAT for e-commerce businesses. The proposed rules will have a significant impact on e-commerce businesses with operations in the European Union. The majority of the new VAT rules are expected to take effect as of January 1, 2018 and as of January 1, 2021.

Executive summary

According to the European Commission, the current VAT rules for e-commerce create burdensome VAT obligations and harm businesses, as they prevent businesses from engaging in cross-border e-commerce. Furthermore, disparities currently exist between EU and non-EU businesses due to the level of VAT compliance. For example, non-compliance and the existing import VAT exemption for low value parcels means that Member States miss out on VAT revenue.

In summary, the proposal aims at:

introducing a reduced VAT rate for e-publications;

introducing an EU-wide MOSS threshold of EUR 10,000 for EU businesses, effective as of January 1, 2018;

introducing an EU-wide MOSS threshold of EUR 100,000 for EU businesses for collecting one piece of evidence to determine the location of a private customer, effective as of January 1, 2018;

introducing a General One Stop Shop scheme for EU businesses (“GOSS”) and a One Stop Shop scheme for non-EU businesses (“OSS”), effective as of January 1, 2021;

introducing new rules for the import of low value parcels for EU and non-EU businesses, and cancellation of the import VAT exemption for low value parcels, effective as of January 1, 2021;

simplifying VAT compliance under GOSS and OSS for EU and non-EU businesses, effective as of January 1, 2018 and January 1, 2021;

ensuring a high level of VAT compliance by enhanced coordination between Member States of cross-border VAT audits, for the most part effective as of January 1, 2021.

Our initial comments

Introducing a reduced VAT rate for e-publications

The proposal will allow Member States to implement a reduced VAT rate for the supply of e-publications, including loan by libraries, e.g. e-books, online newspapers, online periodicals. The standard VAT rate currently applies. We expect that many Member States will welcome this proposal. The proposal does not have a starting date. The reduced VAT rate could be introduced immediately after formal agreement by all Member States.

Introducing an EU-wide MOSS threshold of EUR 10,000 for EU-businesses, effective as of January 1, 2018

If the threshold of EUR 10,000 (excluding VAT) is not exceeded, the supply of cross-border telecommunications services, broadcasting services and e-services by EU businesses to EU private customers will be VAT-taxable in the Member State of the supplier. Currently, these services are generally VAT-taxable in the Member State of the private customer. The introduction of a general threshold is clearly a compliance simplification for micro-businesses and SMEs. Monitoring VAT rules in other Member States is no longer required, as long as the general threshold is not exceeded. The threshold applies to all Member States combined and is expected to be exceeded quickly. It is possible to opt-out and apply the MOSS rules. Non-EU businesses are excluded from applying the threshold, even if they are registered for MOSS in the EU.

Introducing an EU-wide MOSS threshold of EUR 100,000 for EU businesses for collecting one piece of evidence to determine the location of a private customer, effective as of January 1, 2018

Currently, two non-contradictory pieces of evidence are required to determine the location of a private customer. It is proposed that, below the threshold of EUR 100,000 (excluding VAT), a single piece of evidence is sufficient. Non-EU businesses are excluded from applying the threshold, even if they are registered for MOSS in the EU.

Introducing a General One Stop Shop (“GOSS”) for EU businesses and a One Stop Shop (“OSS”) for non-EU businesses, effective as of January 1, 2021

For cross-border distance sales of goods EU businesses currently remit local VAT to local tax authorities if the distance sales thresholds are exceeded. It is proposed that cross-border distance sales of goods and services by EU businesses to EU private customers will be covered by GOSS. The EUR 10,000 threshold described under 2 above will apply to GOSS, but then only to distance sales of goods and telecommunications services, broadcasting services and e-services. GOSS simplifies compliance for EU businesses, as they will no longer be required to register for VAT and file VAT returns in other Member States for qualifying supplies. EU businesses should however continue to implement policies and controls to manage local VAT rules.

For non-EU businesses, MOSS will be extended to cover services other than telecommunications services, broadcasting services and e-services. MOSS seems to have been extended with the special import scheme addressed below, therefore effectively becoming a One Stop Shop (“OSS”) for qualifying supplies. For non-qualifying supplies (e.g. distance sales of goods not imported and/or above a value of EUR 150; see below), non-EU businesses should continue to register for VAT and file VAT returns in accordance with the rules currently applicable.

Introducing new rules for the import of low value parcels for EU and non-EU businesses, and cancellation of the import VAT exemption for low value parcels, effective as of January 1, 2021

For the import of parcels with a value not exceeding EUR 150, a special import scheme is proposed, under which it will be possible to pay VAT via a one-stop shop. For EU-businesses, the special import scheme seems to fall under GOSS; for non-EU businesses, it seems to fall under OSS.

Non-EU businesses are required to appoint an EU intermediary to act as their representative for the payment of VAT through the special import scheme, unless they are duly authorised by the Member State of identification or if they are established in a country with which the European Union has concluded an agreement on mutual assistance.

If VAT is not accounted for via the special import scheme and if the end customer did not opt for the standard import procedures (e.g. to apply a reduced rate), a special arrangement is proposed for declaring and paying import VAT. This special arrangement only applies to parcels with a value not exceeding EUR 150. For such supplies, logistic service providers, postal operators, and express couriers are allowed to electronically report and pay import VAT on behalf of the person for whom the goods are destined.

The import of goods into the EU for private customers may become subject to various regimes, each with their own detailed rules. This may be an undesired effect of the proposed changes. We note that the currently applicable VAT exemption for low value parcels (not exceeding EUR 22 in the Netherlands) will be cancelled. The new rules will not lead to the cancellation of the customs exemption for low value parcels (not exceeding EUR 150 in the Netherlands).

Simplifying VAT compliance under GOSS and OSS for EU and non-EU businesses, effective as of January 1, 2018 and as of January 1, 2021

It is proposed that invoicing rules and record keeping rules of the Member State of the supplier or the Member State of VAT identification will apply as of January 1, 2018, with a 30-day VAT return deadline for both MOSS and GOSS applying as of January 1, 2021, in addition to allowing retroactive corrections via the regular return process. It has also been proposed that the VAT invoicing of sales of goods under GOSS will be disregarded. We expect that these compliance simplifications may be too extreme for some Member States.

Ensuring a high level of VAT compliance by enhanced coordination between EU Member States of cross-border VAT audits, for the most part effective as of January 1, 2021

It is proposed that the Member State of the supplier or the Member State of VAT identification will coordinate VAT audits, and that this Member State will be reimbursed for this.

Next steps

The current proposal is a key part of the VAT Action Plan, a wider initiative of the European Commission to modernize VAT rules and strengthen the internal market. More change is to follow.

The current proposal should be adopted by the European Council, whereas the European Parliament will first submit its opinion on the proposal. We expect that the proposal will be subject to changes prior to adoption. We also expect detailed implementing provisions.

In the interim, we recommend that you assess whether the proposed rules could impact your business, your VAT compliance position and your IT systems. If you expect the implications to be significant, we recommend reviewing whether, and to what extent, current policies and controls should be revised to anticipate the proposed changes. Meijburg & Co would be more than happy to discuss the proposal or assist with an impact analysis to decide on the steps that need to be taken.

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